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Stochastic Revealed Preference and Rationalizability

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  • Heufer, Jan

Abstract

This paper explorers rationalizability issues for finite sets of observations of stochastic choice in the framework introduced by Bandyopadhyay et al. (JET, 1999). Is is argued that a useful approach is to consider indirect preferences on budgets instead of direct preferences on commodity bundles. Stochastic choices are rationalizable in terms of stochastic orderings on the normalized price space if and only if there exits a solution to a linear feasibility problem. Together with the weak axiom of stochastic revealed preference the existence of a solution implies rationalizability in terms of stochastic orderings on the commodity space. Furthermore it is shown that the problem of finding sufficiency conditions for binary choice probabilities to be rationalizable bears similarities to the problem considered here.

Suggested Citation

  • Heufer, Jan, 2008. "Stochastic Revealed Preference and Rationalizability," Ruhr Economic Papers 70, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:70
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    References listed on IDEAS

    as
    1. Heufer, Jan, 2007. "Revealed Preference and the Number of Commodities," Ruhr Economic Papers 36, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    2. Hugh Rose, 1958. "Consistency of Preference: The Two-Commodity Case," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 25(2), pages 124-125.
    3. Little, James T., 1979. "Indirect preferences," Journal of Economic Theory, Elsevier, vol. 20(2), pages 182-193, April.
    4. Daniel McFadden, 2005. "Revealed stochastic preference: a synthesis," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(2), pages 245-264, August.
    5. Sakai, Yasuhiro, 1977. "Revealed favorability, indirect utility, and direct utility," Journal of Economic Theory, Elsevier, vol. 14(1), pages 113-129, February.
    6. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-973, July.
    7. repec:zbw:rwirep:0036 is not listed on IDEAS
    8. Jacob Marschak, 1959. "Binary Choice Constraints on Random Utility Indicators," Cowles Foundation Discussion Papers 74, Cowles Foundation for Research in Economics, Yale University.
    9. Bandyopadhyay, Taradas & Dasgupta, Indraneel & Pattanaik, Prasanta K., 1999. "Stochastic Revealed Preference and the Theory of Demand," Journal of Economic Theory, Elsevier, vol. 84(1), pages 95-110, January.
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    Cited by:

    1. Jan Heufer, 2009. "Stochastic homothetically revealed preference for tight stochastic demand functions," Economics Bulletin, AccessEcon, vol. 29(3), pages 2472-2477.

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    More about this item

    Keywords

    Stochastic choice; rationalizability; revealed preference; weak axiom of stochastic revealed preference; revealed favorability;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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